Ronald Reagan - Domestic policy

The most significant element of Reagan's first months in office,
however, was not the crafting of his public image or the shaping of his
style of governance—as important as both those things were to the
future of his presidency. It was his bold effort to transform the
nation's economic policies. Relying on the arguments of the
supply-side theorists who had been so important to his campaign, he
proposed a three-year, 30-percent reduction in both individual and
corporate income tax rates—the biggest single tax reduction in
American history. The tax cuts affected people in all income groups; but
the greatest beneficiaries were people in the highest
brackets—those who, according to the supply-siders, would be most
likely to use the surplus income to invest in the economy. Congress
approved the president's proposal in late July 1981, after lowering
the reduction slightly, to 25 percent.

Cutting taxes, Reagan insisted, would stimulate economic growth much more
effectively than the traditional liberal approach of increasing government
spending. But Reagan, in fact, increased spending too. He proposed an
enormous increase in the military budget ($1.5 trillion over five years)
to rebuild armed forces that he claimed had been allowed to deteriorate
badly in the 1970s. Congress approved that increase, although it was later
scaled back significantly. At the same time, the administration set out to
make substantial cuts in domestic spending. David A. Stockman,
Reagan's talented budget director, supervised an effort to squeeze
more than $41 billion out of the government's nonmilitary
"discretionary" spending. The task was extremely difficult.
The administration could not reduce the 10 percent of the budget committed
to paying interest on the national debt (which reached $1 trillion during
Reagan's first year in office) and had already agreed to actual
increases in the 25 percent of the budget that went to the military. It
was not willing to make any significant changes in spending on Social
Security, Medicare, and several other broad-based programs. That left a
host of much smaller programs, constituting about 10 percent of the
budget, many of which were designed to help the poorest Americans. Almost
by definition, the bulk of the cuts Stockman proposed came from these
programs.

The administration increased the already tight spending restrictions on
Medicaid, the major program of medical assistance for the poor, which the
federal government financed jointly with the states. It reduced federal
subsidies for low-income housing, cut spending on food stamps, reduced
federal aid to education and federal contributions to state governments,
and placed new restrictions on Aid to Families with Dependent Children
(the principal program of direct assistance to the poor). It also
substantially reduced spending on government itself—forcing staff
and service cuts in almost all departments and agencies. In some cases,
the cutbacks eliminated the waste and inefficiency that Reagan argued was
characteristic of many government programs. In other cases, they impaired
the ability of agencies to function effectively and contributed to the
growing popular belief that government could not be trusted to do anything
well.

The administration did not win congressional approval of all the budget
reductions it requested, but it did much better than most observers had
expected. Even many programs that had once seemed unassailable experienced
significant reductions. It became clear early in 1981 that the results of
the 1980 election had sent shock waves through Congress. Republicans and
Democrats alike were scrambling to respond to what they thought the voters
had demanded. But they were also responding to evidence of the
president's growing popularity. The administration pushed its
legislative package through Congress in part through skillful lobbying by
the talented White House staff. But equally important were the
president's effective television addresses to the nation, which
aroused groundswells of popular support for his proposals.

Men and women whom Reagan appointed fanned out through the executive
branch of government, committed to reducing the role of government in
American economic life. Deregulation, an idea many Democrats had begun to
embrace in the Carter years, became the religion of the Reagan
administration. Secretary of the Interior James G. Watt had been a major
figure in the Sagebrush Rebellion, a movement among western conservatives
to fight federal environmental regulations, which they believed had a
particularly devastating effect on their region's economy. Watt
opened up public lands and water to development and tried to ease other
restrictions on the private use of public lands. The Environmental
Protection Agency (before its directors were indicted for corruption)
relaxed or entirely eliminated enforcement of critical environmental laws
and regulations. The Civil Rights Division of the Justice Department eased
enforcement of civil rights laws. The Department of Transportation slowed
implementation of new rules limiting automobile emissions and imposing new
safety standards on cars and trucks. By getting government "out of
the way," Reagan officials promised, they were helping to ensure
economic revival.

The Reagan administration also transformed the federal judiciary. By the
time he left office, Reagan had named more than half of all the federal
judges in the nation and three justices of the Supreme Court, among them
Sandra Day O'Connor, the first woman ever appointed.
Reagan's court appointments, like his appointments to regulatory
agencies, had the effect of reversing many of the judicial trends that had
been gathering force for over twenty years. The conservative judges and
justices who took office in the 1980s set about limiting the effect of
some of the decisions of the Warren Court in the 1960s—tempering
the strict protections of criminal rights, softening some civil rights
measures, and perhaps most notably, weakening (although never eliminating)
the right to abortion established by the Supreme Court's 1973
decision in
Roe
v.
Wade
. Symbolic of the conservative shift was Reagan's elevation of
William H. Rehnquist, one of the most conservative Supreme Court justices,
to chief justice; and his appointment to the Court of Antonin Scalia, a
brilliant legal scholar of exceptionally conservative views. Reagan
attempted to appoint Robert H. Bork, another fervently conservative
judicial activist, to the Supreme Court but was stymied in that effort
after a well-organized campaign by liberals and feminists against
Bork's controversial views.

Reagan's policies were seldom as radical as his rhetoric (and never
as radical as the agenda of the militantly conservative Republican
Congress of the mid-1990s). But taken together, the achievements of
Reagan's first term represented a significant shift in the
direction of public policy. That was visible above all in the
administration's economic policies. For the first time since the
1920s, the government was shaping its fiscal policy (its taxing and
spending) to promote investment more than consumption and to reduce the
tax and regulatory burden on corporations and wealthy people. For the
first time since the 1950s (and much more energetically than then), an
administration was attempting to stop the growth of many areas of
government and to reduce, at times even to eliminate, programs that many
Americans had come to consider timeless and unassailable. So distinctive
was the new economic program that many began describing it as the Reagan
Revolution or, even more frequently and enduringly, Reaganomics.

Both in his campaign and in his early presidential speeches, Reagan had
promised not only to reduce taxes and cut spending, but to balance the
federal budget. He never did. Instead, his policies contributed to the
largest budget deficits in American history and a tripling of the national
debt during his eight years in office. Indeed, one of Reagan's most
important legacies was his contribution to an enduring fiscal crisis. He
helped create a federal budget that was structurally, and radically,
unbalanced; and he launched an era in which the national debt grew
steadily and dramatically for many years.

The fiscal crisis did little to erode Reagan's popularity. Even
though his administration never proposed, let alone achieved, anything
approaching a credible balanced budget, the public apparently did not care
very much, or accepted the president's explanation that the deficit
was the fault of Congress. But the fiscal crisis had a profound and
lasting effect on American politics. Over time, it deeply eroded the
already weakened faith of the American people in their government and
their leaders. And it placed an enormous, even insuperable, obstacle in
the way of future leaders who wished to use government to address domestic
or international problems. By the mid-1990s, the federal deficit, and
efforts to reduce it, had become one of the central facts of American
political life.

Reagan had not intended to explode the federal deficit, but his decisions
as president led inevitably to that result. He cut taxes substantially and
continued to support those cuts even when they did not produce the
increase in government revenues that supply-side advocates had promised.
He increased the military budget by much more than he was able to cut
domestic spending. He refused to consider taking the politically difficult
steps of finding savings in popular entitlement programs, most notably
Medicare and Social Security, despite strong pressure from members of
Congress to do so. His budget officers based their economic projections on
dubious, at times even preposterous, assumptions that they themselves knew
were false. David Stockman delivered a sharp blow to the
administration's image late in 1981 when, in a remarkably candid
interview in the
Atlantic Monthly
, he suggested that the Reagan Revolution had failed. The
president's tax cut, he claimed, was a "Trojan
horse," promising reductions for everyone but really designed to
reduce the rates at the top. The administration had never made a serious
effort to balance the budget and never had a reasonable idea of how to do
so. "None of us really understands what's going on with all
these numbers," he conceded.

By the end of Reagan's third year in office, funding for domestic
programs had been cut nearly as far as Congress (and, apparently, the
public) was willing to tolerate, and still no end to the rising deficits
was in sight. Congress responded with the so-called Gramm-Rudman bill,
passed late in 1985, which mandated major deficit reductions over five
years and provided for automatic budget cuts in all areas of government
spending should the president and Congress fail to agree on an alternative
solution. Under Gramm-Rudman, the budget deficit did decline for several
years from its 1983 high. But much of that decline was a result of a
substantial surplus in the Social Security trust fund. (The administration
had helped engineer a dramatic increase in Social Security taxes, which
for people of low and moderate incomes more than offset the effects of the
1981 income tax reduction.) By the late 1980s, many fiscal conservatives
were calling for a constitutional amendment mandating a balanced
budget—a provision the president himself claimed to support but did
little to promote. (Congress came within one vote of passing such an
amendment in 1995.)

Much more damaging to the president's political fortunes was a
steep recession that began late in 1981 and soon became the most severe
since the Great Depression. Reagan's economic policies were not
responsible for the downturn; few of them had yet had a chance to have an
impact on the economy. But the administration did little to fight the
recession once it began. Reagan took his lead in part from Paul Volcker,
the strong-willed chairman of the Federal Reserve Board (appointed by
Jimmy Carter), who considered inflation a more serious threat to the
economy than recession. Volcker's policies of high interest rates
had been one of many causes of the recession, and his slowness to reduce
the rates was one reason the recession became so severe. The recession was
particularly devastating to American industry. Manufacturers had been
suffering from the high interest rates for several years. High rates made
it difficult to borrow and invest; they also made the dollar expensive in
world markets and sharply reduced American exports. The nation's
trade deficit rose from $25 billion in 1980 to $111 billion in 1984. Once
the recession began, businesses closed plants and eliminated hundreds of
thousands of jobs. Unemployment in 1982 reached 9.7 percent, its highest
point in more than forty years. Farmers, even more dependent on exports
than manufacturers, fared worse. Hundreds of thousands of them lost their
land in the course of the 1980s.

Reagan expressed sympathy for victims of the recession, but he never
seriously considered changing course. He supported Volcker's
commitment to the anti-inflation strategy even as the economy slid further
downward. He refused to alter his economic program, insisting that if the
nation would "stay the course" it would emerge healthier and
more prosperous at the end. And in fact, the recession lifted more rapidly
and impressively than almost anyone had predicted. By the end of 1983,
unemployment had fallen to 8.3 percent, and it continued to decline for
the next five years. The gross national product had grown 3.6 percent in a
year, the largest increase in nearly a decade. Inflation had fallen to
below 5 percent. The economy continued to grow, and both inflation and
unemployment remained low (at least by the more pessimistic standards the
nation seemed to have accepted) for the rest of the decade.

The recovery was a result of many factors. The Federal Reserve finally
eased interest rates early in 1983. A worldwide "energy
glut" and the virtual collapse of the powerful cartel of Middle
Eastern oil producers stopped the upward spiral of energy prices that had
done so much to fuel inflation and inhibit economic growth in the 1970s.
And the staggering levels of deficit spending pumped billions of dollars
into the sagging economy. Reagan's policies had not worked as their
initial advocates had expected, and much of his administration's
contribution to the economic recovery was inadvertent. The recovery
itself, moreover, was less robust than the major economic indicators
revealed. The benefits of the economic growth flowed disproportionately to
those in the upper income categories, and the boom did not create jobs or
increase incomes for working-class and lower-middle-class people in any
way comparable to what earlier booms had done. The poverty rate not only
failed to decline, but actually rose in the 1980s from its levels of the
1970s. But these problems became visible only slowly. In the meantime, the
president reaped enormous political benefits from the prosperity of 1983
and beyond, which his supporters later called, with some justification,
"the longest peacetime expansion in American history."